STR: Europe's record performance in 2017 forecast for 2018 also

Europe’s hotel industry recorded all-time high performance levels in 2017 with additional growth expected in 2018, according to data and forecasts from STR.

Europe (Euro constant currency, 2017 vs. 2016)

• Occupancy: +2.4% to 71.9%
• Average daily rate (ADR): +3.1% to EUR110.51
• Revenue per available room (RevPAR): +5.6% to EUR79.46

Each of the three key performance metrics were the highest STR has ever benchmarked for Europe.

Ahead of his presentation at the International Hotel Investment Forum (IHIF) on Monday, 5 March in Berlin, STR’s managing director, Robin Rossmann, comments on the region’s performance:

“Hotel markets across Europe have benefitted from a wide range of factors in recent years,” Rossmann said. “While hotel performance was up for nearly every world region in 2017, Europe was the clear leader in terms of growth. The region has seen substantial growth in both tourism and corporate business, and has remained resilient in the face of several terror attacks, with increasingly shorter turnaround periods needed for performance recovery. Looking ahead, we expect 2018 to be another stellar year for Europe hotels, with RevPAR growth again exceeding 5% year over year.”

Occupancy nearly 10% above previous peak

In addition to rising 2.4% over 2016, Europe’s occupancy level in 2017 was nearly 10% higher than the previous peak in 2008, which came before the global financial crisis. Rossmann noted that Europe’s performance has benefited from supply growth remaining relatively limited in most markets since 2011. This, coupled with steady demand growth, has allowed hotel operators to capitalize on heightened occupancy levels by driving rate growth. During the months of July, August and September 2017, Europe recorded double-digit ADR growth compared with those same months in 2008.

ADR premiums rise 

Several key European cities have seen substantial uplifts in high compression nights between 2008 and 2017, meaning there have been more nights where occupancy levels have exceeded 90%, allowing for hotel operators to drive higher rates as the remaining rooms available become more valuable. In addition to an increased amount of high compression nights, there has been a substantial increase in rate premiums charged on those nights. London, for example, recorded roughly 75 nights with occupancy above 90% in both 2008 and 2017, but the market’s ADR premium rose from 22% in 2008 to 33% in 2017. Dublin reported a dramatic increase in both the number of high compression nights, up from 14 in 2008 to 145 in 2017, and in its ADR premium, up from 25% in 2008 to 41% in 2017.

2018 Outlook

STR’s Market Forecast Reports for 2018 project strong performance growth in a number of key European cities, with Moscow, Athens, Paris, Brussels, Amsterdam, Madrid and Prague all expected to see RevPAR growth above 6%, mainly as a result of ADR growth. Paris’ performance will likely be driven by demand growth, as the market continues to see increased tourism from terror attacks in recent years. Berlin hotels are expected to record a RevPAR increase around 5%, again mainly driven by growth in ADR.

After benefitting from the ‘Brexit boost’ of a weakened pound sterling following the U.K.’s June 2016 EU Referendum, London’s hotel performance has slowed in recent months as the sterling has recovered substantially against the dollar. Although London’s demand (room nights sold) is expected to continue growing, it will likely be outweighed by supply growth, as the city’s hotel inventory continues to expand. ADR growth should help the U.K. capital achieve year-end RevPAR growth around 2%.

STR, in partnership with Tourism Economics, conducts Market Forecasts for more than 70 key global hotel markets based on historical performance levels, macroeconomic factors and expert insights. For more information, please contact forecast@str.com. 

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